But the declines weren't as big as those on Wall Street overnight as some investors focused on hopes of further economic stimulus steps from China and anticipation that Japan will employ public funds to support its stock market. The fact that regional markets had already fallen sharply on Monday also helped pare early losses.

"The markets have been oversold... Normally, regional markets run ahead of Wall Street, and they already slumped yesterday," said Ben Kwong, chief operating officer at KGI Asia.

Japan's Nikkei 225 Average ended down 0.7% at 7,229.72, holding above the psychologically-important 7000-point mark. Australia's S&P/ASX 200 fell 1%, recovering much of its lost ground after the central bank left interest rates unchanged -- belying expectations for a reduction -- saying the economy was faring better than in other nations.

South Korea's Kospi Composite gained 0.7%, New Zealand's NZX-50 ended 2.6% lower after plumbing five-year lows and Taiwan's Taiex added 0.2%. India's Sensex slipped 0.3% by mid-afternoon and Singapore's Straits Times had given up 1% in late trading.

China's Shanghai Composite fell 1.1%, also paring early declines, as a government advisory body started its annual meeting, spurring hopes of more stimulus measures to support the economy.

Banks a drag

Recovery on the mainland lifted the Hang Seng China Enterprises Index 0.5% in Hong Kong, but the benchmark Hang Seng Index ended 2.3% lower, dragged down by HSBC Holdings (5)
HBC, +0.29%
a day after the bank reported a 70% drop in profit and said it will raise $17.7 billion by selling shares to existing shareholders. HSBC plunged 18.8%, while its Hong Kong-based subsidiary Hang Seng Bank (11)
HSNGY, -3.01%
lost 3.5%, after disappointing with its earnings report Monday.

"Japanese bank capital is highly susceptible to the risk of fluctuations in equity prices. We calculate that the leading banks will need to boost their capital by about 13 billion yen to 190 billion yen ($134 million to $1.96 billion) for every 10% drop in the Nikkei average if they are to maintain their end-December capital ratios," UBS wrote in a report.

However, Japanese stocks were helped off their early lows by indications that public funds were supporting the market.

Akira Ishida, head of the equities department at Chuo Securities, said it was unclear how much public funds were actually buying, if at all, but "the possibility of a stock market rebound on increased public support is surely making some sellers hesitate."

Dow Jones Industrial Average
DJIA, +0.72%
futures were up 64 points in screen trade, a source of mild optimism, with S&P 500
SPX, +0.59%
futures up more than 7 points.

"It seems like the market's trawling some of the massive underperformers," said Justin Gallagher, head of Sydney sales trading at ABN AMRO. But "the outlook just looks so terrible that it's hard to see a meaningful rally," he added.

April Nymex crude-oil futures were recently up 12 cents at $40.27 a barrel on the Globex electronic platform, recovering a little ground after sliding $4.61 or 10.3% in New York.

April gold futures fell a further $12.8 to $927.20 per troy ounce, after extending their fall into a sixth session overnight in New York. Anderson Cheung, director of precious metals at Mitsui Bussan in HK, said margin call-related selling had eased and that "if gold doesn't break the $890 level for a week or so, the market is likely to regain strength."

In New Zealand there was little respite, with Pike River Coal
PKRRF, +900.00%
(PRC) plunging 10% on news it would raise NZ$45 million ($22 million) through an issue of shares and an accompanying bonus option to provide funds, following a halt in coal production due to damage to a part of its mine.

By late afternoon, Malaysian shares were off 0.8%, Indonesia's main index rose 0.3% and Philippine stocks inched up 0.2%.

Risk aversion boosted the U.S. dollar in the currency markets, though the moves were subdued as Asian shares came off their lows.

The U.S. dollar was recently at 97.81 yen, from 97.35 yen late in New York. The euro was recently at $1.2665, from $1.2578, and at 123.82 yen, compared to 122.47 yen.

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